BERLIN, Sept. 10 (Xinhua) -- The European Central Bank (ECB) announced on Thursday that it will hike the key interest rates by 25 basis points.

As geopolitical conflicts linger on and energy prices are hovering at high levels, the ECB raised the three key interest rates and also revised up its inflation projections for 2027 and 2028, signaling higher inflation risks.

Hardly providing any guidance about its next move, the ECB is insisting on a meeting-by-meeting approach.

A SECOND RATE HIKE

The latest rate hike will push the interest rate on the deposit facility through which the ECB steers its monetary policy up to 2.5 percent. The interest rates on the main refinancing operations and the marginal lending facility will be increased to 2.65 percent and 2.9 percent respectively.

It is the second time that the central bank has raised interest rates since September 2023. The ECB hiked interest rates by 25 basis points in June this year.

In its last easing cycle, the ECB cut interest rates by a total of two percentage points in 13 months since June 2024, bringing the interest on the deposit facility down to 2 percent from 4 percent.

The aggressive rate cuts among other measures successfully tamed the stubborn inflation in the euro area, putting the ECB in "a good position" in most of 2025 when inflation was staying around 2 percent.

UNCERTAINTIES REMAIN HIGH

"The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth," the ECB said in a statement.

The euro area inflation edged up to 3.3 percent in August from 2.9 percent in July, according to the statistical office of the European Union.

The inflation surge was attributed largely to energy prices, which soared by 14.3 percent in August on an annual basis and 2.9 percent compared with July.

Data released by the European Union show that prices of all other items included in the headline inflation stayed stable, indicating that the energy price spikes have not yet fed into other sectors in the economy.

The resurgent inflation in the euro area has obviously put the ECB on high alert. In the latest staff projections unveiled on Thursday, the ECB now expects headline inflation to average 3 percent in 2026, 2.5 percent in 2027 and 2.1 percent in 2028. The inflation projection for 2026 remains unchanged while that for 2027 and 2028 have been revised up compared with June.

"The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period," said the ECB in a statement.

STANDS READY TO ACT

As inflation goes higher, the economy in the euro area grew stronger than expected.

The euro area economy grew by 0.4 percent in the second quarter compared with the first three months, beating estimates.

Acknowledging the "greater than expected" resilience of the economy, the ECB revised its baseline projections for economic growth in 2026 and 2027 upwards. It expects the economy to grow by 0.9 percent and 1.4 percent respectively.

While the ECB's decision to hike rates on Thursday is not controversial considering the latest developments, its future rate path is more complicated to predict, noted Carsten Brzeski, global head of macro at ING Research.

In view of the heightened uncertainties fueled by the geopolitical tensions, the ECB has been closely monitoring any possible second-round effects from higher energy prices.

Quoting survey-based inflation expectations as well as core and services inflation, Brzeski pointed out that there are "hardly any second-round effects."

Still on high alert, the ECB insists: "We stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium-term target."